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Peter Lee

The Canadian Minister of National Revenue announced the
formation of a committee of third-party experts in April 2016,
the Offshore Compliance Advisory Committee (the committee), to
advise it on administrative strategies to deal with tax
non-compliance.

The committee's first report, which was issued in December
2016, looked into Canada's voluntary disclosure programme (VDP)
and recommended a reduction in the relief available under that
scheme – particularly for taxpayers who use
sophisticated offshore structures in their tax planning.

The release of the report coincides with an increasing focus
by the Canada Revenue Agency (CRA) on improving offshore tax
compliance. In particular, the Canadian federal government
announced in 2016 that it would commit an additional C$444
million ($339 million) over five years to improve tax
compliance. This initiative includes implementing a review of
all international electronic funds transfers (EFTs) over
C$10,000 between Canada and four foreign jurisdictions for each
year of the programme. According to the CRA, 3,000 EFTs
totalling C$860 million between Canada and the Isle of Man were
reviewed under this initiative over a 12-month period,
resulting in approximately 350 individuals and 400 entities
being contacted and 60 audits launched.

Under Canada's VDP, if a taxpayer's voluntary disclosure
satisfies specified conditions, criminal prosecution and civil
penalties are generally waived, and partial relief for accrued
interest on unpaid tax may be given. However, all unpaid tax
must be paid. In its report, the committee echoed the
recommendation of an OECD report on VDPs that said a VDP be
designed to make taxpayers who voluntarily disclose their
non-compliance pay (1) more than they would have paid if they
had not allowed their compliance to lapse (by imposing
penalties and interest on unpaid tax), but (2) less than
taxpayers who do not voluntarily disclose their
non-compliance.

As noted, the committee recommended that the available
relief be curtailed, including where:

There has been deliberate or wilful
default or carelessness amounting to gross negligence;

The taxpayer made active efforts to avoid
detection through the use of offshore vehicles or other
means;

Large dollar amounts of tax were
avoided;

The taxpayer has a record of multiple
years of non-compliance;

The taxpayer has made repeated use of the
VDP;

The taxpayer is sophisticated; or

The taxpayer's disclosure was motivated by
statements by the tax authorities of an intended focus of
compliance or by broad-based compliance campaigns.

The committee also recommended that any individual making a
voluntary disclosure should be required to disclose the
identity of advisers who assisted with non-compliance by, for
example, assisting in the establishment of offshore accounts or
structures. The report noted that these advisers may be liable
to third-party penalties or may be charged with an offence
under applicable tax legislation. The report also voiced a
concern that certain VDPs may not be undergoing a suitable
level of review by tax authorities and recommended that in
appropriate cases (for instance, involving aggressive tax
planning) the disclosures be reviewed by more senior or more
specialised personnel than was previously the case.

The committee's report is part of a shifting tax landscape
in Canada and elsewhere, which has seen tax authorities
focusing increased attention on identifying and preventing
perceived domestic and offshore aggressive tax planning.